Felix Salmon

Ask, and you’ll receive an explanation of what this chart means.

One way to look at this chart is in horizontal slices. Right now, for instance, if you look along the bottom of the chart, you can see that the line is bluest at the right-hand end, and reddest in the middle-class zone up to roughly $100,000 a year in annual income. When the chart is blue, that means you’re paying less tax than people on your income level have done historically, and when it’s red that means you’re paying more.

Looked at this way, you can see that taxes were generally very low up until about 1930, and they were generally pretty high in the 1940s and 1950s. And then something interesting happens around 1970: different parts of the population start being taxed in very different ways. So people earning roughly $10,000 to $50,000 a year had historically very low tax rates between about 1970 and 1980, while people earning more than $1 million a year (in 2011 dollars) have been doing very well for themselves since about 1990.

Another way to look at the chart is to look at vertical slices of it. For instance, the slice for people earning $1 million per year, in 2011 dollars, is on the left. In this case, the very rich had it best during the Gilded Age of the 1920s, and were taxed most heavily in the 1940s and 1950s. During the 1980s they were taxed at a historically-normal level, and today they’re undertaxed by historical standards.

But the main takeaway from the chart, at least for me, is that taxes in general have been declining for a long time now, especially on the rich. Which is one big reason why the fiscal situation looks unsustainable: we’re just not raising enough money in taxes to be able to pay for the amount we spend each year. With entitlements on both the retirement and healthcare side of things certain to rise inexorably for the foreseeable future, the chart is going to have to get redder from here on in. It’s not a question of whether, it’s just a question of when.

Alan Mutter has a great example of how to put up a paywall the right way. The Augusta Chronicle put a paywall in place in December — and since then traffic is up by 5%. (One proviso here: that seems to be a year-on-year comparison, and so traffic might have fallen from its levels immediately before the paywall was implemented, the numbers are unclear.)

The Chronicle’s paywall is both cheap and porous. It’s on a meter system, with readers allowed to read 25 “premium articles” per month before they’re asked to pay. Taking a leaf from the Economist’s book, the Chronicle defines premium content as anything which appears in print. Online, however, it’s very unclear what counts as a premium article, and in reality most readers will never come close to that limit.

Once you’ve reached the limit — something only the most loyal readers do — you’re asked to pay the low price of $6.95 a month for full digital access. If you’re a print subscriber, which is likely, the price is even lower — just $2.95 per month.

As a result, the number of people buying digital subscriptions is low. But there’s no reason why paywalls should be hugely remunerative right out the gate.

Executive editor Alan English understands very clearly that the value of paywall need not reside in its revenues: “The act of placing a value on our journalism may be more important than any penny we ever collect,” he told Mutter. “It’s a powerful statement from the publisher and positions us distinctly in the market.”

In other words, the idea here is that people who read the Chronicle’s website are now being told quite explicitly that they’re reading valuable journalism. That, in turn, means that they will value and respect it more than they would some free sheet.

And once the paywall is securely in place, the Chronicle can tighten it up slowly, over time, with subscription prices rising and the monthly quota falling. (As indeed it has already fallen: at launch the meter was placed at 100 premium articles per month.)

I said back in November, just before the Chronicle paywall was launched, that if I was charged with maximizing paywall revenue, I’d start at just a buck or two a month, to attract as many subscribers as possible and to get them used to the idea of paying for content online. Once the subscriber base hit a critical mass, then I’d start raising the rate, as quietly as possible. It would take a few years, but the end result would be many more people paying for their online subcription than if you started off with a rate remotely comparable to the price of the print subscription.

The Chronicle team seems to understand this; it remains to be seen whether the executives at the NYT will work it out as well. I’m not a fan of the NYT paywall, partly because its readers already value its journalism very highly and so it’s less in need of signaling mechanisms than the Chronicle is. On top of that, nytimes.com is an important part of international web-based conversations in the way that chronicle.augusta.com can never be, and so the downside to the NYT if it gets this wrong is much larger.

Now that the decision to launch an NYT paywall has been made, however, and tens of millions of dollars have been spent developing it, I do hope that they will be smart enough to roll it out slowly, with a low price and high quota for the first few months. If they do that and traffic doesn’t fall, they’ll be much better positioned over the long term than if they come out of the gate annoying a lot of readers who are currently not willing to pay for news online.

Neil Hume asks whether the stock-market plunge in Japan is an “overreaction,” as markets around the world are exhibiting enormous volatility and uncertainty for obvious reasons.

My feeling is that what we’re seeing in the markets today is entirely rational, and that a 3-day move in the Nikkei of less than one annual standard deviation is actually pretty modest given the enormity of what has happened in that country since the earthquake hit early Friday morning.

The main way in which the world has changed since Friday is that tails have got a lot fatter. It’s far too early to tell what the long-term effects of the earthquake and tsunami will be on the Japanese economy, on the future of nuclear power as an alternative energy source to fossil fuels, on the size of Japan’s holdings of foreign securities, or just about anything else. But the effects will be real, and there’s a significant chance that they will be large.

In general, markets do two things in the face of uncertainty: they fall, because reliable predictability is valued more highly than the unknown; and they become more volatile, because it’s that much harder to value future income streams. And both of those effects are magnified when you’re in an economic environment of zero interest rates. That’s because the discount rate at which you value future income is very low, with the result that modest changes to a value here or a rate there can have extremely large effects in terms of present value.

That helps explain why the Nikkei plunged so dramatically in the fall of 2008, going from 12,000 to 8,000 in the space of a month. By those standards, a fall from 10,500 to 8,500, as we’ve seen in the past three sessions, is pretty much in line with what happens to Japanese stocks in the face of a major market event.

The most likely outcome here is that Japan will spend a lot of money to rebuild its economy, but not so much that the national finances will be disrupted massively. There’s still a long-term fiscal problem in Japan, but the short-term liquidity situation is solid, and a major natural disaster like this one is a no-brainer of a reason to put fiscal worries on the back burner and stimulate the economy with much-needed reconstruction spending.

That said, however, there are definitely less likely scenarios out there as well which are much more gruesome for Japan and indeed for the entire world. With the probabilities attached to those scenarios being impossible to calculate, expect to see continued volatility in global asset markets for at least as long as the news out of Japan remains in flux — and possibly for quite a while after that, as well. This earthquake literally shifted the world’s axis: there’s a good chance it’ll do so metaphorically as well. If you’re a bold macro-fund manager who can see five moves ahead and loves to play in volatile markets, this is heaven for you. The rest of us are just going to suffer from aftershocks for a while.

American Homeowner Preservation Buying Pools of Defaulted Mortgages & REO’s: An intriguing and hopeful development — Shame the Banks

Angelo Mozilo’s settlement with the SEC: $67.5 million — SEC

The SEC Saw Gupta as a Clear and Present Danger to Shareholders — CNBC

Surowiecki explains why the NFL players should win the current dispute — TNY

Individuals are doing it, banks are doing it — faced with the horrific news and pictures from Japan, everybody wants to do something, and the obvious thing to do is to donate money to some relief fund or other.

Please don’t.

We went through this after the Haiti earthquake, and all of the arguments which applied there apply to Japan as well. Earmarking funds is a really good way of hobbling relief organizations and ensuring that they have to leave large piles of money unspent in one place while facing urgent needs in other places. And as Matthew Bishop and Michael Green said last year, we are all better at responding to human suffering caused by dramatic, telegenic emergencies than to the much greater loss of life from ongoing hunger, disease and conflict. That often results in a mess of uncoordinated NGOs parachuting in to emergency areas with lots of good intentions, where a strategic official sector response would be much more effective. Meanwhile, the smaller and less visible emergencies where NGOs can do the most good are left unfunded.

In the specific case of Japan, there’s all the more reason not to donate money. Japan is a wealthy country which is responding to the disaster, among other things, by printing hundreds of billions of dollars’ worth of new money. Money is not the bottleneck here: if money is needed, Japan can raise it. On top of that, it’s still extremely unclear how or where organizations like globalgiving intend on spending the money that they’re currently raising for Japan — so far we’re just told that the money “will help survivors and victims get necessary services,” which is basically code for “we have no idea what we’re going to do with the money, but we’ll probably think of something.”

Globalgiving, it’s worth pointing out, was created to support “projects in the developing world,” where lack of money is much more of a problem than it is in Japan. I’m not at all convinced that the globalgiving model can or should be applied directly to Japan, without much if any thought about whether it’s the best way to address the issues there.

That said, it’s entirely possible that organizations like the Red Cross or Save the Children will find themselves with important and useful roles to play in Japan. It’s also certain that they have important and useful roles to play elsewhere. So do give money to them — and give generously! And give money to other NGOs, too, like Doctors Without Borders (MSF), which don’t jump on natural disasters and use them as opportunistic marketing devices. Just make sure it’s unrestricted. The official MSF position is exactly right:

The ability of MSF teams to provide rapid and targeted medical care to those most in need in more than 60 countries around the world – whether in the media spotlight or not – depends on the generous general contributions of our donors worldwide. For this reason, MSF does not issue appeals for support for specific emergencies and this is why we do not include an area to specify a donation purpose on our on-line donation form. MSF would not have been able to act so swiftly in response to the emergency in Haiti, as an example, if not for the ongoing general support from our donors. So we always ask our supporters to consider making an unrestricted contribution.

I’ve just donated $400 in unrestricted funds to MSF. Some of it might go to Japan; all of it will go to areas where it’s sorely needed. I’d urge you to do the same, rather than try to target money at whichever disaster might be in the news today.

Update: Some bright spark has set up a “Socks for Japan” drive. I’m not making this up. I trust that none of my readers are silly enough to send socks to Japan, but this is a great indication of how wasteful a lot of well-intentioned giving can be.

Transcript of Warren Buffett’s Interview With the FCIC — Santangel’s Review

State Department’s P.J. Crowley stepping down — CNN

$60k fine for blogger who reported truth — Boing Boing

Japan Earthquake: before and after — ABC

A great post on the Economics of Bike Lanes — Olaf Storbeck

Knight donates nearly $1 million for a news-tailored CMS — Nieman Lab

Some great news on the Gaby Giffords front — Politico

Banks and merchants are trying to turn the debit interchange debate into a consumer issue, which it really isn’t — Fee Fighters

I’ve known Josh Reich, BankSimple’s CEO, for a while now, but it’s only today that I managed to sit down and have a serious conversation with CFO Shamir Karkal. He’s a very interesting guy — go check out his latest blog entry on the rise of Credits and you’ll see what I mean. Our discussion today was largely about payments, an area where BankSimple stands out starkly from the mass of banks and credit unions by being in favor of lower debit interchange fees.

The debit interchange debate is at full volume right now, as banks try to lobby Congress to weaken the part of the Dodd-Frank law which essentially forces the Fed to bring interchange fees down to a very low level. And both sides — banks vs merchants — are putting a lot of money and effort into noisily pushing their side of the story. It was only when I sat down with Shamir that I finally found someone with a considered middle-ground view. And he makes a lot of sense.

The big picture here starts with the fact that there are very good public-policy reasons for central banks to assiduously regulate payments mechanisms and ensure that they clear at par. Paper checks are very expensive to process, for instance, but if I write you a check, the amount of money that I spend and the amount of money that you receive are identical.

In much of the world, bank transfers work the same way. If you give me your bank account details, I can transfer money straight from my account to yours, and you will receive the exact amount of money that I sent. In Scandinavia, this happens in real time: I can transfer money to you now, and you can see that money appear in your bank account minutes later.

The US is far behind on this front; bank transfers are so cumbersome, time-consuming, and expensive that a huge company called PayPal has grown up to try to make money out of providing an easier way of doing things. But people have a tendency to send money via PayPal by typing in their credit-card number, and in that case the amount of money received is significantly less than the amount of money sent. In other words, PayPal does not always clear at par, and that’s both a weakness of the system and an explanation of how come it was sold for well over a billion dollars.

Right now, debit cards can’t be used for person-to-person payments. There are companies like Square popping up to try to change that, but again they take their cut, with the effect that debit does not clear at par. If you pay me $100 with Square, I’ll receive $97.50.

This is a problem, because it makes payments difficult and inefficient. We’re at a restaurant, and we don’t want to burden the waiter with two different cards. So I pick up the check and you transfer half the total bill directly from your account to mine. That should be easy, but it isn’t. And if one of use has to pay a fee for doing that kind of thing, it’s never going to happen.

The next important realization is that payment mechanisms are fragmenting, but are also subject to enormous network effects. The cash-and-checks duopoly over payments lasted a long time, but is long gone now, and there’s a huge push towards lots of other payments systems, from mobile to debit to things like Facebook Credits. And what all of them want is ubiquity and scale. There’s no point in me signing up for PayPal if you aren’t signed up too. But if everybody’s signed up, it’s great.

Once a payments system gets enormous, it then has the ability to start extracting rents. This is exactly what happened with debit cards: in the beginning, they were very cheap, as banks encouraged merchants to accept them. Once substantially all merchants did start accepting debit cards, the banks then embarked on a process of extracting rents by steadily increasing debit interchange fees. And left to their own devices, they will continue to raise those fees steadily and inexorably. This goes against the public interest, and it’s an abuse of the banks’ monopoly position.

Enter the central bank. In a sensible system, the central bank should constantly be keeping a close eye on what’s happening in the payments space, and trying to maximize the ease with which people can transfer money to one another while at the same time being able to keep an eye on money laundering.

This is not uncommon in much of the world, especially in Scandinavia. Payments systems there don’t make lots of money for the banks, but they do help the economy as a whole run much more smoothly.

In the US, however, this doesn’t happen at all, for two main reasons. Firstly, the banks are far too big, too powerful, and too important to the economy as a whole. As such, they’ve effectively captured their regulators, to the point at which the Fed considers its main job to be to safeguard the health of the financial system rather than to minimize inefficiencies in the economy as a whole.

On top of that, the US has a rigid rules-based system rather than a more flexible principles-based system. As a result, no matter how much the Fed looked into the system of debit interchange, it was effectively powerless to prevent massive fee inflation unless and until Congress gave it a mandate to do so. That mandate arrived with Dodd-Frank, but again the Fed’s pretty powerless to do anything intelligent or inventive: it has no choice but to implement the Durbin amendment exactly as it’s written. So the whole battle is being played out in front of Congress. What should be a matter for technocrats is instead being decided by politicians, and it’s rare that ever results in an improvement.

In a sensible system, we wouldn’t need the Durbin amendment at all, because the Fed would have been on top of the debit interchange situation all along, and would have pushed hard on the banks to ensure that they didn’t start extracting rents from what is at heart an extremely cheap and efficient payments utility. But because of the way the Fed’s set up, they couldn’t or didn’t do that.

What this means is that as payments go mobile, we’re going to have exactly the same problem all over again. The banks will coalesce around some kind of mobile-payments solution, they will support it until it becomes broadly adopted, and then they’ll start extracting as much money from it as they can get away with. And the Fed will look on, powerless, until someone like Durbin comes along to legislate a one-off solution which will almost certainly not be optimal.

All of which is to say, we desperately need the Fed to move to smart principles-based regulation with real teeth, at least when it comes to payments. But I fear there’s precious little chance of that.

Should there be some kind of cap on director compensation? The question arises in Duff McDonald’s Fortune profile of Rajat Gupta from October:

His long career as a well-connected corporate consigliere made Gupta highly coveted as a director. Between 2006 and 2009, Gupta picked up seats on the boards of five public companies — American Airlines parent AMR, global outsourcer Genpact (of which he is also chairman), Goldman Sachs, audio equipment giant Harman International, and Procter & Gamble. He also joined the supervisory board of Russia’s Sberbank and the board of the Qatar Financial Centre. Altogether, those positions paid him more than $3.2 million in 2009.

Gupta has drawn criticism for his hefty board income. He left his position with Sberbank in June. But in 2008, he was paid $525,000 — more than he made for his Goldman board seat — to sit on the board of the bank, the largest in Russia and Eastern Europe by assets, while the next-highest-paid director earned only $110,000. The question of whether he could actually be “independent” while being paid $525,000 was a serious enough one that RiskMetrics, the corporate-governance watchdog based in Washington, D.C., advised minority shareholders to vote against his nomination in 2009. He was reelected anyway.

If a director is being paid half a million dollars a year by a company, that seems to me a pretty effective way in which the management of the company can capture the director. And earning $3.2 million in one year from non-executive board positions alone is just bonkers.

But wait a minute, Gupta has a rival in the insane-board-remuneration stakes! Step forward Cathie Black, who contrived to take home $3.3 million from IBM last year. Admittedly, that wasn’t all for one year’s work: she retired from the board and cashed in all the shares she held in the IBM Deferred Compensation and Equity Award Plan, under which her $260,000 annual director’s fee gets paid out in stock and held by the company.

I do understand that board members of big corporations are often very wealthy people, and that therefore it takes large sums of money to so much as get their attention. But that’s not always the case. Here’s Warren Buffett, in his latest annual letter:

The directors who represent you think and act like owners. They receive token compensation: no options, no restricted stock and, for that matter, virtually no cash. We do not provide them directors and officers liability insurance, a given at almost every other large public company. If they mess up with your money, they will lose their money as well. Leaving my holdings aside, directors and their families own Berkshire shares worth more than $3 billion. Our directors, therefore, monitor Berkshire’s actions and results with keen interest and an owner’s eye.

I’m particularly impressed, here, by the lack of D&O insurance — although I suspect that the directors might just buy their own insurance personally. But this, to me, is pretty much the ideal board, comprised of real owners of the company, who don’t need to be attracted with quarter-million-dollar annual retainers or Deferred Compensation and Equity Award Plans. As an individual shareholder, I’d be much more comfortable being represented by a Berkshire-style board than by the kind of people who feel the need to charge $525,000 a year for their services.

Fed capture watch: its report says wrongful foreclosure can only happen when the owner isn’t delinquent — HuffPo

Duff McDonald’s October profile of Rajat Gupta — Fortune

Fred Goodwin has obtained a super-injunction preventing him being identified as a banker — Telegraph

I’m beginning to think that John Cassidy must have a serious masochistic streak: he’s now back for a third round of smack-downs, after having drawn unanimous scorn for his first two attempts to demonize bike lanes.

Cassidy purports to take seriously the question of his negative externalities when he drives his Jaguar. But he gets it embarrassingly wrong:

In the case of motor vehicles, there are several negative spillovers, the most obvious of which is pollution and the associated climate threat…

A second issue is congestion…

This gets things completely backwards. The amount of pollution emitted by today’s cars is actually pretty low, while the amount of congestion they cause is enormous. I’d be happy to introduce Cassidy to Charlie Komanoff one day, the guy who’s actually done all the hard empirical math on this question. The pollution-related negative externalities associated with Cassidy’s drives into Manhattan are tiny, while the congestion-related ones are enormous — well over $100 per trip.

And Cassidy’s proposals for tackling congestion are weird indeed: carpool lanes? I have no idea how that’s meant to work on 52nd Street. Meanwhile, the one thing which does work — congestion pricing — is conspicuously absent from Cassidy’s list.

All of this rhetoric allows Cassidy to set up a classic straw man:

Some would say that reducing New York’s carbon footprint is of such importance that we need to utilize bike lanes and other techniques to further inconvenience car drivers.

Actually, John, amid all the thousands of words which have been directed at you since you embarked upon this bizarre crusade, no one said anything like that at all. Big cities like New York are already by far the carbon-friendliest places in America, as Cassidy’s colleague David Owen would be happy to explain to him.

But Cassidy drives blithely on:

I haven’t seen any cost-benefit analysis backing this up, and, frankly, I don’t think such concerns are driving the debate. If global warming disappeared tomorrow, the bike lobby would still demand more bike lanes.

Well, John, here’s a cost-benefit analysis for you. It’s a massive Excel file, It has almost nothing to do with global warming, and it’s completely compelling. The bike lobby has a solidly-grounded empirical basis for the advantages of building bike lanes. You, on the other hand, have an XJ6, an 8pm reservation on Grove Street, and an overgrown sense of entitlement.

Cassidy claims that he wants

some sort of efficiency test beyond the rule of two wheels good, four wheels bad. Do the putative gains in convenience, safety, and fuel-economy from a particular bike lane outweigh the costs to motorists (and other parties, such as taxpayers and local businesses)?

At this point it’s clear that Cassidy has no idea what this kind of analysis — which actually does get done — is involved in these things. He gets the benefits largely right, although I think that he massively underestimates the value and importance of safety gains. If you significantly reduce pedestrian fatalities, as the Prospect Park West bike lane has done, that in and of itself is reason to build it. As for the costs, there’s really very little evidence that motorists and taxpayers and local businesses bear any costs at all.

Cassidy’s in such a bizarro world here that he even wonders out loud whether the Prospect Park West bike lane might endanger pedestrians, when in fact it protects them. And when he forays into the issue of pedestrian safety — an issue which the pro-bike-lane crowd would happily make the sole deciding issue for every single lane — he decides that what’s important here is “the growing problem of cyclists terrorizing pedestrians”. Again, without any empirical evidence to back up his assertion that this problem is growing at all, and certainly without any recognition of the fact that cars are much deadlier in collisions with pedestrians than bikes could ever be.

Cassidy reckons, in his conclusion, that the question of whether to build bike lanes is not a question of a public-interest transportation facility against private-interest parking spots. Instead, he says, “it comes down to one private user versus another” — presumably the bikers on the lane, versus the car drivers who would otherwise be able to park in those spots. Well, that’s an easy balance to strike. When Cassidy plonks his Jag down on a West Village street and disappears off to dinner, he’s just using up space: he’s not serving any public interest at all, and he’s blocking that part of the road for anybody else who might want to use it. When a bicyclist travels down a bike lane, by contrast, she’s there and she’s gone. She uses up almost no space, and she immediately frees up the lane for the next cyclist to come along behind her.

On top of that, every driver who decides to bicycle on one of the new lanes is one less driver for Cassidy to compete with in crosstown gridlock. By rights, he should be loving the way that bike lanes are reducing the number of cars on the road, rather than railing against them. But for all that he claims to be “wonky” in this post, it’s clear that he’s much more interested in coming up with any conceivable justification for his already-existing prejudices than he is in dispassionate analysis. The fact is, it’s the bicyclists who have all the data on their side. The car lobby just has inchoate rants.

Antony Currie has a handy little FAQ on debit interchange. I agree with most of it, especially his final conclusion that the US should move to a secure chip-and-pin system. But I take issue with his idea that for the time being, the Durbin amendment is flawed and “needs a do-over.”

Indeed, Currie’s two conclusions are at odds with each other. The reason that interchange fees are so much higher in the US than they are elsewhere is precisely because they’re so profitable for the banks, which can use their fraud losses to justify some $16 billion in fees each year. If they moved to a safer, cheaper system, those profits would go away. If you allow banks to continue to wallow in a multi-billion-dollar revenue stream from debit interchange, they’ll have no incentive at all to move to a better system.

So what’s Currie’s reason to keep interchange fees high — or at least higher than they’re slated to go?

The more that customers have used them over the past 15 years, the more banks have been able to remove minimum balance requirements and transaction fees they used to charge to fund all the cash and checking transactions. These forms of payment cost 70 cents or more a pop, according to JPMorgan — at least 60 percent more than the average debit card fee.

Let me expand this a bit. Once upon a time, banks had to implement unpleasant things like minimum balance requirements and monthly fees and transaction fees, because checking accounts meant lots of cash and check transactions — both of which are labor-intensive things, for banks. Then, debit cards came along, and debit cards are much cheaper, for banks, than either cash or checks. As customers have moved to debit cards, banks have been able to get rid of some of those unpleasant fees. And at this point, debit cards are a significant profit center for banks, in stark contrast to cash and checks, which are both major loss centers.

The answer to this problem is not to continue the weird cross-subsidy of checks by debit. Instead, it’s to move away from checks, and towards a more European system where it’s easy to transfer money directly from any bank account to any other bank account. The less that people use cash and checks, the less cross-subsidy the banks will need from debt interchange and other fees, and the more efficient the whole system will be.

More generally, we have far too much opacity in banking as it is. Hidden fees are regressive: they generally hurt the poor and benefit the rich. (In the case of debit interchange, the rich tend to have those lovely rewards debit cards, while the poor have to pay higher prices at big-box merchants.) If banks want to charge fees, let them be transparent about it so that consumers can shop around. My guess is that for all the doom-mongering from the banks, most of them will somehow find a way of keeping hold of their customers, and keeping fees low. No bank ever likes to lose a customer, if only because today’s low-income, low-profit account can easily turn into tomorrow’s lucrative banking relationship once the customer starts getting rich.

In the wake of my back and forth with Linda Stern, I took the advice of commenter Kid Dynamite and moved the discussion to email. Here’s how it went:

Felix: Why do you think it makes sense to borrow against your house to invest in the stock market? And if it makes sense for people buying houses, why doesn’t it make sense for people owning houses? If I own my home outright, should I take out a mortgage and invest the proceeds in a mutual fund? If not, why not?

Linda: My advice, intended for first time homebuyers who are trying to save up for a down payment, was based on the belief that both mortgage interest rates and home prices will rise faster than they can accumulate big down payments. Using leverage like this allows them to lock in a historically low mortgage rate and a home price, and start building equity in a home. If you already own a home, you wouldn’t need to lock in the home, so, no, I don’t think it’s necessarily wise to remortgage it for investment cash. That being said, if you have an outstanding mortgage with a fixed interest rate of 4.8 percent or less, I think it would probably be the better bet to take any extra money you have and invest it in a diversified fund instead of using it to pay off your mortgage early. If you could do that through a tax-advantaged retirement vehicle, that would be even better.

Felix: OK, let me try again. It seems to me, just like it seems to my commenter Kid Dynamite, that you’re making two different claims in your posts. The first is that first-time homebuyers without much of a downpayment should buy now anyway. The second is that even if you do have a large downpayment, you shouldn’t put it all into your house, and instead you should invest that money in a diversified mutual fund. I’m trying to concentrate on the second claim here. So, let’s build four different scenarios here; let’s assume they’re all at an interest rate of 4.8%, and that in every case the homeowner can comfortably make her mortgage payments.

1. Alison is buying a house for $250,000. She has $50,000 — 20% of the price — in savings which she can use as a downpayment. You suggest that she should not put all that money down, and instead should invest some of it in the stock market. “The less you put down,” you write, “the better off you are”. So if Alison can buy the house with just 3.5% down, or $8,750, should she be investing roughly $40,000 of her savings in the market rather than using that money as a downpayment?
2. Brenda already owns her house, which is worth $250,000, and it carries a $200,000 mortgage which she wants to refinance. If the lender is willing to refinance for more than $200,000, should she accept the offer of a cash-out refinance and invest that new cash in the market?
3. Christie is in the same boat as Brenda, except that her outstanding mortgage, which she wants to refinance, is much smaller — just $50,000. How much should she refinance for, in the knowledge that she will take any extra cash and invest it in a mutual fund?
4. Debbie owns her house, worth $250,000, outright. Should she take out a mortgage of any size at all, and invest the proceeds in the market?

In each case, homeownership is a given: Alison, Brenda, Christie and Debbie are all going to own that house either way. I’m just trying to zero in here on the idea that you should borrow against your house and invest the proceeds in stocks. When is that a good idea, and when is that not a good idea? And if it’s a good idea for Alison to have less than $10,000 of equity in her home, why is that not also a good idea for Brenda, Christie, and Debbie?

Linda: Sorry, Felix, you’re not going to get me to give individual advice about who should and who shouldn’t use home equity to invest in the stock market. That depends on many variables that you don’t go into here: How much do you already have saved for retirement or invested elsewhere? How intelligently do you invest? What’s your ability to withstand risk? When will you need the money? How comfortable is your income stream? Etc. etc. etc. My main point is that a homeowner who can comfortable make their mortgage payments on a fixed 4.8 percent home loan could probably find better places to put extra cash, rather than buying down the loan. For someone, that might be an emergency fund. For someone else, that could be a Roth IRA invested in a balanced mutual fund. I’m not going to tell any of your readers or mine to remortgage their paid-off homes and put all the cash in stocks. But I’m sure there are some folks out there — well-heeled and well-capitalized folks — who would do that, and would end up happy for it.

Now let me answer your question another way: I, personally, have taken cash out of my paid-off home to pay for home repairs while at the same time contributed money to my IRA. Isn’t that the same thing?

Felix: Linda, of course I wasn’t asking for individual advice any more than you were giving individual advice when you wrote your initial posts. But back then you seemed quite happy to generalize and say that the less you put down, the better off you are.

My point is that your advice seems to be, shall we say, path-dependent. If you start off with no house, then you’re advising putting as little money down as possible. If you start off with lots of house, on the other hand, you’re shying away from making the same advice to lever up, even if it brings the homeowner to the exact same place.

Economics is full of cases where people will make different choices depending on how the choices are presented. Here’s a good example. But as personal-finance columnists, it’s incumbent upon us to point out those areas of irrationality and to to say that if you have the choice between A and B, then you should plump for the outcome which makes the most sense, regardless of how you get there. The choice facing Alison is the same as the choice facing Brenda. Your original column was quite clear about what Alison should do, but now you’re backtracking on what Brenda should do. And that’s why it seems to me that what you’re advising is irrational.

For me, the choice in all cases is clear: it’s pretty much always a bad idea to borrow money and invest it in the stock market — and it’s an even worse idea to borrow money against your house and invest it in the stock market. Because that way you not only risk losing money in the market, you also risk losing your house. I’m sure you can come up with an extreme example of “well-heeled and well-capitalized folks” for whom your idea might make sense, but even there I’m having difficulty working out why people who are so well-heeled (and who therefore have diminishing marginal utility of future returns) would feel the need to leverage their investments in such a manner.

I’m quite happy saying that my advice applies to at least 95% of the homeowners in the country. Yes, individual risk appetites vary, as do total savings and the like. Individuals are unique. But this is one area I feel very comfortable generalizing. Leveraging your stock-market investments with unsecured debt is dangerous; leveraging stock-market investments with secured debt is downright foolish.

Does that mean you’re foolish to borrow money against your home while still contributing to your 401(k)? Maybe not — 401(k)s are special, in terms of tax treatment, and if your employer is matching your 401(k) contributions then of course it makes sense to maximize them first. On the other hand, I do find it revealing that you borrowed specifically “for home repairs”, which are a very prudent expense, rather than for stock-market speculation.

Let’s say that you, Linda, didn’t have any home repairs this year, and that you had maxed out your 401(k). In that case, would you still have borrowed against your house, and put the proceeds in the market? I suspect not. On the other hand, let’s say you were buying your house. In that case, would you follow your own advice and put as little money down as possible, leaving the rest for investment in the market? If so, then I’m detecting an irrational inconsistency here. No?

Linda: As I’ve already said, I think the two examples — (1) someone buying a house for the first time and (2) someone refinancing a home to take money out isn’t the same thing. Alison and Brenda are two very different people! I think the person buying a home is using the leverage afforded by the low down payment to get the house in the first place. (Locking in loan, home price, beginning to build equity, saying goodbye to rent.) The person refinancing a home they already own is putting more at risk — the home — and spending money on closing costs etc. to get that investment money.

Now let me ask you a question. What about Alison, the homebuyer who has that $50,000? She could put it all down on the house, building 20 percent of equity immediately. Or she could put $8750 down, and have $41,250 left. Wouldn’t that money, invested cautiously or saved in a liquid account, better protect her from bad financial times (job loss, housing price decline, etc. etc.), than having it all tied up in the house? Again: from the homeowner’s point of view and not the bank’s.

I do think there is value, and not irrationality, in making “path-dependent” decisions, and in gradations of behavior. Taking some affordable amount of money out of home equity and investing it might make sense in some situations — such as putting it in that retirement account and that balanced mutual fund, even in the absence of home repairs. Cashing in the place where your kids sleep at night to make a big bet on Apple doubling one more time? Not so much. I didn’t recommend that kind of speculation in either of my posts.

Felix: OK, thanks Linda, I think we’ve probably wrung this one dry — although I’d point out that $41,250, if “saved in a liquid account,” is very unlikely to yield more than 4.8%.

I did promise you the last word — so, anything else you want to add before I publish this?

Linda: This has been fun and I look forward to doing it some day with wine. I think I’m done.

The NYT’s paywall isn’t live yet, but the meter’s already ticking. Go to the site’s new recommendations page, and you’ll see a sidebar which looks a bit like this:

I’m clearly a heavy user of nytimes.com: I’ve read 155 articles over the past month, according to the system they’ve built at a reported cost of more than $40 million. I’m not at all sure that’s money well spent: my suspicion is that the paywall’s total revenues from the paywall won’t reach that level.

And even at this late date, it seems, the system is doing silly things like make a distinction between “Business,” on the one hand, and “Business Day,” on the other. No, me neither.

As for the Topics, like the wonderfully-named “Blogs and Blogging (Internet),” they take you to barren and unhelpful pages like this one. If the paywall is really a navigation fee, then you’d hope that the NYT would spend a bit more effort making its website in general, and its topic pages in particular, a lot more navigable, with lots of attractive exit points. Instead, there’s nothing — not even a navbar at the top.

It seems to me that the redesigned paywall-focused site — which is feeling decidedly delayed at this point — is still decidedly on the glitchy side. If you’re going to be sending out press releases about your recommendations engine, shouldn’t those recommendations be “Presented by” Thomson Reuters, the launch sponsor, rather than a blank green box?

Still, I’m impressed that my silhouette actually looks a little bit like me. Albeit me on a bad hair day.

There is nothing shameful or embarrassing about saving money, and restaurants wouldn’t pay Groupon lots of money for the privilege of using its service if they didn’t want lots of people to come in and claim a discount. But still, it’s undeniable: there’s a faint whiff of cheap associated with any coupon, to the point at which some restaurants are implementing built-in gratuities to try to stop people from tipping on the discounted amount. And I have friends who are adamant that they’ll never use a groupon or anything like it, for fear of the perceived stigma involved.

Enter Foursquare. The thing I like most about the Foursquare partnership with Amex, as explained by Dan Frommer, is that it’s completely invisible to your server and to your guests — in that respect it’s a bit like iDine, only even easier.

The obvious partner here, of course, is not Amex so much as Groupon itself. You buy your groupon online, and you don’t even need to print it out — the next time you check in to the merchant and pay the full amount for your meal or other service, you automagically find the amount of the refund on your credit card statement.

Technically, this whole system could probably work fine even without Foursquare’s cooperation: so long as you add Groupon as a friend on Foursquare, it’ll be able to see your checkin and take care of the rest of the process itself. But it’s always nice to see a little button come up on Foursquare saying you’ve activated a deal.

Between this and the other new features that Foursquare just announced in time for SXSW, I’m beginning to see how Foursquare could become the vital hyperlocal app. Now we just need them to change the search-results display, so that it shows results in order of distance rather than in order of popularity. That annoys me every time.

What is the ratio of true statements to false statements in the official Spider-Man announcement? — Spider-Man

Preemie baby drug goes from $15 to $1,500 — MoJo

I love Salman Khan, even if I also have serious pangs of regret that I never had this when I was a kid — TED

Choire and Shah on splitting the check — Awl, ibid

Adam Levitin explains why arguments against the fraudclosure settlement are incoherent — Credit Slips

More pushback against Cassidy — Atrios, Bike Snob, Free Exchange, NYT

Why the future of journalism is entirely bright — Tumblr

David Broder’s remarkable life and career — WaPo

I thoroughly approve of the $10 Felix-the-Cat-opt-out charge — Onion

Tom Vanderbilt delivers the best article ever on car-bike relations — Outside

Pimco’s Treasury holdings drop to zero, cash hits all-time high — Zero Hedge

On decoupling NPR from government funding — Economist

“I mumbled something and backed slowly out of the office, thinking that if I made an abrupt move, he might change his mind” — Trillin

Matt Seaton on the NYT’s mysterious partisanship in the bike-lane wars — Guardian

An Egyptian song for all — Reuters